Inflation has dropped to its lowest rate in five years as falling energy prices continued to cut the cost of living.

The Office for National Statistics (ONS) reported that the consumer prices index (CPI) fell to 1.1% in September on a year-on-year basis, down from 1.6% the previous month. This is its lowest point since September 2004, and below the Bank of England's 2% target.

The main cause of the fall was cheaper electricity and gas bills, which are 7.3% lower than a year ago.

The retail prices index, used for many pay negotiations, fell to -1.4%, less than the -1.5% the City had expected.

Economists had expected CPI to come in at 1.3%. The pound fell against other major currencies, hitting a five-month low of $1.5715 against the dollar and a six-month low of €1.0631 against the euro, as traders anticipated that the Bank of England would keep taking steps to stimulate the economy.

Amit Kara, an economist at UBS, said the data would provide some comfort to the Bank's monetary policy committee. "It's consistent with the view that the committee will expand the quantitative easing programme in November," Kara said.

Howard Archer, chief economist at IHS Global Insight, agreed the data will "fuel suspicions that the Bank of England could yet extend its quantitative easing programme by a further £25bn to £200bn, given its still serious concerns about the strength and sustainability of the recovery."

Other economists suggested that CPI may be poised to rise in the coming months.

"This is only a temporary move lower," predicted James Knightley of ING. "Clothing prices and petrol prices jumped, and we suspect that these components have further to rise. Indeed, petrol prices will make a major upside contribution over coming months given that oil price fell to close to $30 a barrel late last year, and then when you add in sterling's plunge then the upward impetus it could be even greater."

The overall cost of the basket of goods and services which the ONS uses to measure inflation remained unchanged between August and September. Food and non-alcoholic beverage prices fell by 0.9% month on month, and transport costs were 1.5% lower, but clothing and footwear prices rose by 3.6%.

On a year-on-year basis, education costs showed the bigger rise, up 8.2%, followed by alcoholic beverages and tobacco, which were 4.2% pricier. Clothing and footwear showed a 6.9% drop over the year, with housing costs 1.1% cheaper.

James Knightley of ING predicted that today's fall in CPI would quickly be reversed. He said: "Clothing prices and petrol prices jumped, and we suspect that these components have further to rise."

Fuel costs rose 2.3% between August and September, but were 6.6% lower than a year ago, reflecting moves in the oil price.